Oil Prices and Regional Solidarity

Oil prices matter beyond the pump. The recent drop in the price of crude (from $100 to $30 per barrel) has been cause for celebration in oil-consuming countries like the United States. An understandable reaction since it sometimes seems as if our economy is based entirely on this liquified fossil fuel. The impacts beyond the gas tank are, however, more complex and diverse.

The IMF recently warned that Haiti and Nicaragua stand to lose out because of the low oil prices. That’s because both countries (along with seventeen others) receive oil at a steep discount from Venezuela through the regional solidarity bloc PetroCaribe. Through the alliance, Venezuela offsets these discounts with profits from oil sales to other countries. With profit margins thinning and a series of local crises, some internal and some external, Venezuela’s ability to continue the program is now in question.

Like all national and international policies, I find it helpful to look at concrete impacts. In Nicaragua you needn’t look past the local bus stop. The country’s public transportation system is kept affordable because of the subsidized oil imports from Venezuela combined with Nicaraguan policies dictating reduced rates for travel by bus, van, and taxi both in urban centers and between them. These reduced rates allow people from the countryside to reach urban areas and the economic opportunities they contain. They make possible local trade networks for individual producers and small businesses. Without reduced oil from PetroCaribe, it’s quite possible that transportation costs could become prohibitive for those who rely most on public transit. In Haiti, the situation is much the same.

It’s unclear how long Venezuela can maintain these subsidies, but in the meantime continuing sanctions and denouncements from Washington are complicating rather than resolving Venezuela’s own internal conflicts. These conflicts also threaten regional initiatives like PetroCaribe, and in doing so carry the possibility of unsavory outcomes in fragile countries like Haiti and Nicaragua.

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